I think the problem with the blockchain is that it is relatively immutable, while the internet is anything but. Also, the cost for making a Namecoin change is inexpensive now, but if it were to take over full operations for even one TLD, that would not remain the case.
For some reasons to use DNS (e.g. service discovery) the latency associated with a blockchain would be prohibitive. Generally, I think it's an excellent application.